Bipartisan Commission Gives Waxman-Markey Climate Bill Mixed Review

A bipartisan energy policy group called today for action on climate legislation and laid out principles for such a measure, including views that collide with the leading House climate and energy measure.

The National Commission on Energy Policy's report presents an overview of major issues -- such as allowance allocations, offsets, trade and costs -- that will be followed in the coming weeks by the group's detailed recommendations and proposals.

Overall, the group is pressing for final passage of climate legislation during this Congress because delays will make it more difficult to avoid the most severe effects of global warming.

"Moreover, the latest developments in climate science lend greater urgency to the case for action: Effects on natural systems are already being observed and recent findings concerning the potential scope and magnitude of damages from future warming are increasingly worrisome," the report says.

The group's broad recommendations largely overlap with the goals and provisions of H.R. 2454, the sweeping climate bill approved by the House Energy and Commerce Committee last month.

The report calls for measures to prevent the migration of energy-intensive industries to countries with lax emission controls; an allowance system that helps shield households from the effects of higher energy costs; the provision of a significant amount of emissions allowances to emitting industries for free and then phasing in auctions; and protections against the manipulation of and fraud in carbon markets, among others.

The report supports a floor price on emissions allowances, which is included in the House bill, as well. But the commission supports a ceiling on the price of emission allowances to prevent excessive costs and price volatility. That is not part of the House bill sponsored by Energy and Commerce Chairman Henry Waxman (D-Calif.) and Rep. Ed Markey (D-Mass.).

The report indicates openness to an alternative system that would be created by Waxman-Markey -- an allowance "reserve" to aid industry if costs rise too high -- noting that a well-designed system could provide an "adequate response to cost and volatility concerns."

The commission breaks with Waxman-Markey over the extent to which industries can use international offsets -- such as projects to prevent deforestation or reforest areas -- to meet emission-reduction requirements. The Waxman-Markey plan allows up to 2 billion tons annually of offsets, with half coming from domestic projects and half internationally, with the international amount rising as high as 1.5 billion tons if not enough U.S. offsets are available.

The commission report is worried about heavy use of international offsets.

"The Commission is concerned that over-reliance on international offsets -- given the practical difficulty of assuring that emissions reductions claimed in other countries are real, permanent, additional, and verifiable -- could undermine program goals and political support, especially if substantial U.S. funds are leaving the country to support abatement efforts abroad rather than at home," it states.

The report cautions against "unrealistic" assumptions about the feasibility of managing a large-scale offset regime. Using 1 billion tons of international offsets available under Waxman-Markey would be logistically tough, it says.

"Assuming that an average overseas project would generate 100,000 offset tons per year, this would require the approval of 10,000 projects within three years of the start of the program. To put the administrative burden in perspective, this is more than seven times the total number of projects registered under the Clean Development Mechanism (CDM) established by the United Nations as part of the Kyoto Protocol," it states.

The bipartisan commission includes former U.S. EPA Administrator William Reilly, who is currently a senior adviser to TPG Inc.; Exelon Corp. CEO John Rowe; former Assistant Secretary of Energy Susan Tierney; and Resources for the Future President Philip Sharp. The executive director, Jason Grumet, was a top energy adviser to President Obama's campaign.

Correction: The National Commission on Energy Policy is calling for passage of climate legislation during the 111th Congress.